Health Care Plan Stocks Stage Healthy Breakout

Joe Biden's opposition to "Medicare for All" is medicine for insurers

The prognosis for health care plan stocks wasn't good in mid-April. Leading Democrats were putting forward their proposals for a universal healthcare plan, commonly referred to as "Medicare for All," that would eliminate most private health insurance by creating a government-run system to provide health insurance for all Americans. Panic across the sector reached a fever pitch when UnitedHealth Group Incorporated (UNH) CEO David Wichmann weighed in on the matter, saying that such a reform would destabilize the nation's health care system.

More recently, the industry has looked healthier, as it emerged last month that former vice president Joe Biden is the front runner to be the Democratic Party's 2020 presidential nominee. As opposed to other Democratic nominee hopefuls, the centrist Biden opposes a single-payer healthcare system. "Unlike Bernie Sanders or Elizabeth Warren or Kamala Harris, Biden's against 'Medicare for All,'" said Jim Cramer, host CNBC's "Mad Money."

Furthermore, health care plan stocks generate most of their revenue domestically, which insulates them from the ongoing trade war between the United States and China.

A recent recovery and subsequent breakout in three leading health care plan stocks indicates that the worst may be over for leading insurers. Let's give each company's chart a checkup.

UnitedHealth Group Incorporated (UNH)

With a market capitalization of $236.96 billion, UnitedHealth is the largest private health insurance provider in the United States, with almost 50 million members. It offers employer-sponsored, self-directed and government-backed insurance plans. Analysts expect the health insurance giant to post second quarter earnings-per-share (EPS) of $3.47, which would represent 10.51% growth from the same quarter last year. Revenue over the period is projected to come in at $60.61 billion, up 8.07% on a year-over-year (YoY) basis. Despite the health care reform debate in Washington, UnitedHealth has exceeded Wall Street's earnings expectations over the past four consecutive quarters. The stock issues a 1.54% dividend yield and is up just 0.69% year to date (YTD) as of May 23, 2019.

UnitedHealth shares have oscillated within a broad descending channel since early December. In more recent price action, the stock has broken above a short-term downtrend line that may lead to further upside. Traders should look to buy pullbacks into the downtrend line at $240 that now acts as a support area. Think about taking profits at $270, where the price may encounter resistance from a horizontal trendline stretching back to September. Manage risk by placing a stop-loss order below $235 and moving it to the breakeven point if the price rises above the 200-day simple moving average (SMA).

Chart depicting the share price of UnitedHealth Group Incorporated (UNH)

Humana Inc. (HUM)

Humana Inc. (HUM) operates as a health and well-being company that offers medical and supplemental benefit plans to individuals. The Louisville, Kentucky-based company specializes in government-sponsored programs, with the bulk of its membership coming from individual and group Medicare Advantage and Medicaid. It also offers prescription drug plans to seniors enrolled in Medicare. The company, which has 94.72% institutional ownership, topped analysts' top- and bottom-line first quarter estimates, citing a better-than-expected utilization of the individual Medicare Advantage business for the upbeat results. Humana also raised its 2019 full-year EPS guidance range from between $17.00 and $17.50 to between $17.25 and $17.50. As of May 23, 2019, the company's stock yields 0.86% and is down 10.37% on the year.

Like UnitedHealth shares, Humana stock has traded within a broad descending channel since the fourth quarter of 2018, providing traders with both long and short opportunities. The price has pushed above the upper trendline of a falling wedge pattern within the channel this week, which suggests that buyers may have plans to move the stock higher. Those who seek an entry should buy retracements to $250, where the price finds support from wedge's top trendline. Set a take-profit order between $270 and $280, near the descending channel's upper trendline. Cut losses if the price closes beneath the May 17 low at $240.51.

Chart depicting the share price of Humana Inc. (HUM)

Anthem, Inc. (ANTM)

Founded 75 years ago, Anthem, Inc. (ANTM) provides medical benefits to over 40 million members through employer-sponsored, individual and government-backed coverage plans. The $71.28 billion health insurer also has a dominant position providing Blue Cross Blue Shield branded coverage. Anthem reported first quarter EPS of $6.03, delivering a 2.9% earnings beat. Revenue of $24.4 billion over the period also came in better than expected, exceeding analysts' expectations by 1.7%. The company, which pays a 1.22% dividend yield, attributes higher membership across its businesses for the positive quarterly results and now expects its full-year adjusted net income to be upwards of $19.20 per share, up from $19 per share.

The company's share price has returned 5.83% YTD, and although the stock has underperformed the S&P 500 Index by about 8% YTD, it has outperformed the health care plans industry average by 10.12% as of May 23, 2019.

The Anthem share price dropped roughly 27% into bear market territory between March and mid-April as investors grappled with what impact various "Medicare for All" proposals would have on the health insurance provider. Since that time, the stock has pared over 50% of those losses as political risk fears abated and the focus shifted back toward trade tensions. A recent breakout above an area of month-long consolidation and both moving averages indicates that the upward momentum may continue. Traders who buy here should aim to book profits near the 52-week high between $310 and $315. Position a stop either below the May 21 breakout candlestick low or under the consolidation area at $255.

Chart depicting the share price of Anthem, Inc. (ANTM)
Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.